BA dives towards £150m full-year loss as costs soar

Published on Monday 26 January 2009 20:36

BRITISH Airways is set to report a full-year loss of £150 million after being hit by unexpectedly high costs, the company disclosed yesterday.

The guidance came less than two months after the company told the markets it expected to record a small operating profit when its annual results are published in May.

BA shares slumped 8.5 per cent in the last hour and a half of trading yesterday after the company made the afternoon announcement. They finished down 12.4p at 133.8p.

BA, which is in merger talks with Spain's Iberia, blamed the impact of currency movements for an 8 per cent year-on-year rise in non-fuel costs, compared with previous guidance of 5 per cent.

The airline now expects the three months to 31 December to show an operating loss of 50m, raising estimates for the year ending 31 March to a loss of 150m.

In a statement the company said: "Further economic weakness in January and the outlook for February and March combined with the fall in sterling are impacting our outlook for the year."

It said fuel cost guidance was "largely unchanged" at about 3 billion as the lower price of fuel was being offset by a lower fuel hedging benefit for the year and the impact of the fall in the value of the pound.

BA added that revenue guidance for the year was likely to be unchanged from previous expectations of a rise of at least 4 per cent year on year – and said traffic figures were likely to be in line with those of market rivals.

Last month, BA, which has been locked in talks with Iberia since last July in a bid to create the world's third-largest airline, called off a possible tie-up with Australian airline Qantas. The pair could not agree over Qantas's demand for a majority stake in the combined firm.

At the weekend, BA chief executive Willie Walsh warned that the Spanish carrier's market valuation was unacceptably high since the euro grew stronger against the pound and said that there was a chance he could "walk away" from the deal.

BA's current value is about 1.5bn (1.4bn), while Iberia is worth about 1.8bn.

The combined group was expected to generate more than 13bn in annual revenues and unite BA's dominance on lucrative routes to the US with Iberia's links to Latin America.

Arch rival Air France-KLM issued a profit warning last week, but low-fares carrier EasyJet saw its shares rally last Thursday after saying it would manage to stay in the black.

BA's traffic statistics for January and its third quarter results are due on 6 February.

Pre-tax profits for the first half of its current year crashed more than 90 per cent to 52 million after a trading period described by Walsh as "one of the bleakest on record".

The airline responded by reducing capacity by 1 per cent for summer 2009 and suspeding several services from Heathrow.